The cost of pharmaceuticals/drugs has substantially increased in recent years. This directly affects the costs to health care insurance carriers or other insurers that offer prescription/pharmaceutical programs or benefits. To compensate for this, insurers typically raise the premiums that they charge their clients for the pharmaceutical benefits.
Employers, who represent a majority of an insurer's pharmaceutical benefit clients, purchase the benefits for the benefit of their current employees. To offset some of the cost borne by the employer for these benefits, a premium is often charged to the employee by the employer if the employee decides to subscribe to the pharmaceutical benefits.
When an insurer raises the price of the pharmaceutical benefits, the employer may also increase the employee's premium to avoid an increase in the cost of providing the pharmaceutical benefits. The employer may absorb the additional cost, however, absorption of the cost by the employer may lead to a reduction in profits, personnel layoffs, and/or reductions in health care benefits available to the employees. Further, an employer may fail to attract a potential employee if the cost of the pharmaceutical benefits, and the services associated with the pharmaceutical benefits, are less favorable than the cost and services related to pharmaceutical benefits offered by another potential employer.
A conventional method, utilized by employers to mitigate increased pharmaceutical benefit costs, is the multi-tier co-payment pharmaceutical benefits structure. The multi-tier co-payment pharmaceutical benefits structure is designed to pass increased costs to an employee/beneficiary. In the multi-tier co-payment pharmaceutical benefits structure, the employee/beneficiary of the pharmaceutical benefits pays a fixed co-payment for pharmaceuticals at the time of purchase.
The amount of the co-payment in the multi-tier structure will vary according to whether the pharmaceutical is, for example, a generic drug or a brand drug. The co-payment may also vary according to whether any discounts and/or rebates are offered by a pharmacy and/or pharmaceutical manufacturer for the specific pharmaceutical. By classifying the pharmaceuticals according to their costs and imposing higher co-payments for higher priced drugs, employers pass a greater portion of the prescription drug benefit premium to the employees on a pro-rata cost basis. Despite the adoption of the conventional multi-tier co-payment schedule, employers are still faced with fifteen to twenty percent premium increases annually that they have to reconcile.
In order to administrate services in processing and analyzing prescription claims of employees/beneficiaries for pharmacy benefits offered under, for example, a multi-tier pharmaceutical benefits structure, pharmacy benefit companies (PBMs) have emerged. The PBM was designed to also negotiate manufacturer rebates and/or pharmacy discounts on behalf of their clients, for example, the insurers that sponsor pharmaceutical benefits, such that the cost of providing the pharmaceutical benefits is maintained low. Although useful, PBMs have been identified as one potential contributor to the continued increase in the costs of pharmaceuticals.
PBMs were designed to provide services to improve the administration of, and thereby reduce the cost of, pharmaceutical benefits for insurers that sponsor those benefits, however, the cost associated with providing pharmaceutical benefits and the cost of a pharmaceutical at the point of sale has continued to increase.
The increased cost can be attributed, in part, to PBMs who do not pass on one hundred percent of pharmacy rebates, negotiated pharmacy discounts and/or manufacturer discounts to the insurance carrier, employer, and/or employee/beneficiary, whose costs increase when there are increases in the costs of pharmaceuticals.
PBMs may also inflate drug costs by only making more expensive drugs available, in which they have a more favorable rebate arrangement with a manufacturer, available to an employee/beneficiary. Drug manufacturers benefit by making the sale, but the parties responsible for paying for the cost of the pharmaceutical, which may be the insurer, the employer, the employee/beneficiary, or any combination of these, do not benefit because a more expensive drug is utilized.
Some pharmaceutical benefits structures require the employer to not only pay a premium to the insurer for the pharmaceutical benefits, but also a portion of the cost of the pharmaceutical beyond, for example, the employee's co-payment. Thus, when more expensive drugs are designated, the employer's contribution to the cost of the pharmaceutical also increases.
As a result employers have considered eliminating pharmaceutical benefits altogether or adopting a “defined contribution” benefits design/structure. A defined contribution benefits structure is one in which the employer puts a limit on its cost, and accordingly, can predetermine at least some, if not all, of its cost of providing the pharmaceutical benefits.
For example, the insurer may charge a forty-dollar premium per employee/beneficiary for the pharmacy benefits. With a defined contribution structure, the employer will determine how much the employer will contribute to the premium. The employer may only assume responsibility for twenty dollars of the forty dollars, and leave the employee/beneficiary responsible for the remainder.
Accordingly, if the premium increases twenty percent the next year to forty-eight dollars, the employer can still choose to contribute twenty dollars to the premium, and impose the eight-dollar increase upon the employee/beneficiary. With the defined contribution benefit structure, the employer is in control of its level of contribution to the pharmaceutical benefits.
A disadvantage, especially in tough economic climates when, for example, unemployment is high and spending is low, of the elimination of pharmaceutical benefits or the transfer of increased costs to the employee/beneficiary may reduce access to needed prescription drugs. This results in poorer health conditions for employees/beneficiaries who cannot afford the pharmaceuticals.
Also, in tough economic climates, where there may be high unemployment rates, the number of people without health insurance also typically increases. As a result, these uninsured people may seek assistance from the government. If the government finds that the cost of financing prescriptions for these uninsured becomes too costly, the government may seek solutions, such as discount card programs and price controls for pharmaceuticals. The discounts and price controls may limit the profits of pharmaceutical manufacturers.
Further, if the pharmaceutical benefits are eliminated by the employer, or if the defined cost benefit structure is adopted by the employer, the employer may not be able to attract or retain employees who may disfavor employment opportunities where there are no pharmaceutical benefits or where increased premium costs are passed on to the employee.
Accordingly, it would be desirable to provide a pharmaceutical benefits design structure that supports affordable health care. It would also be desirable to provide a pharmaceutical benefits design structure that offers quality and affordable pharmaceuticals, to for example, an employee/beneficiary.
Furthermore, it would be desirable to provide a pharmaceutical benefits design structure that passes the advantages of pharmacy discounts and/or manufacturer rebates to the employee/beneficiary, employer and/or insurer.
It would also be desirable to provide a pharmaceutical benefits design structure that limits the employer's cost to provide the pharmaceutical benefits, while providing affordable pharmaceuticals to the employee/beneficiary.
It would also be desirable to provide a pharmaceutical benefits design structure where the beneficiary makes the choice of drug decision rather than the PBM.